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Monday, August 07, 2006

Housing Will Lead To Bond Market Rally

By Yaser Anwar, CSC of Equity Investment Ideas

The housing market has provided a huge boost to consumer spending in the past several years, and has allowed consumption to outpace income growth.

Faced with a looming contraction in home prices & high gas prices, a drastic reduction in consumer spending is in the pipeline.

Historically sizable decelerations in house price growth have coincided with recessions. However, recessions have also coincided with a contraction in employment.

Nevertheless, real consumption growth should slow to below 2%. Hence, the increasing consumer retrenchment should spark fears of a recession and coincide with a meaningful rally in the bond market. (Note: I've mentioned previously about a bond market rally, but tomorrow i'll be recommending a day trade for Tuesday's Fed meeting, which will include a short on the 10-year bonds. Readers shouldn't confuse my short day trade with my longer term bullish outlook for bonds)

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